Question

# You are given the following information. What is the initial cash outflow? Purchase and installation of...

You are given the following information. What is the initial cash outflow?
Purchase and installation of new equipment \$12,000
The sale price of replaced equipment \$ 4,000
Book value of replaced equipment \$ 3,000
When the new equipment is installed:
Inventory increase \$ 2,000
Accounts payable decrease \$ 1,000
TAXES 40%
IN YOUR ANSWER DO NOT USE WORDS JUST NUMBERS SUCH AS 000,000 000000

First of all we need to find cash inflow from sale of replaced equipment

 Particulars Amount Sales price of replaced equipment 4000 Book value of replaced equipment 3000 Profit (4000-3000) 1000 Tax @ 40% 400 cash inflow from sale of replaced equipment (4000-400) 3600

Now Initial cash flow = Purchase and installation of new equipment + WC changes - cash inflow from sale of replaced equipment

Purchase and installation of new equipment = \$12,000

WC changes = Increase in inventories + Decrease in Account payable = 2000+1000 = 3000 \$

(Increase in urrent asset = decrease in cash and decrease in account payable = decrease in cash)

cash inflow from sale of replaced equipment = 3600 \$

Thus Initial cash flow = 12000 + 3000 - 3600

= 11,400 \$

Thus Ans : 11,400

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